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Redesigning Teams and Incentives in a Merger: An Experiment with Managers and Students

Author

Listed:
  • Claude Montmarquette

    (CIRANO, and University of Montréal, 2020 University Street, Montréal, Québec, Canada H3A 2A5)

  • Jean-Louis Rullière

    (GATE (CNRS, University of Lumiere, Lyon 2, Ecole Normale Supérieure), 93 chemin des Mouilles, 69130 Ecully, France)

  • Marie-Claire Villeval

    (GATE (CNRS, and University of Lumiere, Lyon 2, Ecole Normale Supérieure), 93 chemin des Mouilles, 69130 Ecully, France, and IZA (Institute for the Study of Labor), Bonn, Germany)

  • Romain Zeiliger

    (GATE (CNRS, University of Lumiere, Lyon 2, Ecole Normale Supérieure), 93 chemin des Mouilles, 69130 Ecully, France)

Abstract

After a merger, company officials face the challenge of making compensation schemes uniform and of redesigning teams with managers from companies with different incentives, work habits, and recruiting methods. In this paper, we investigate the relationship between executive pay and performance after a merger by dissociating the respective influence of shifts, which occur in both compensation incentives and team composition. The results of a real task experiment conducted with managers within a large pharmaceutical company not only show that changes in compensation incentives affect performance, but also suggest that the sorting effect of incentives in the previous companies impact cooperation and efficiency after the merger. Replicating this experiment with students showed differences in strategy rather than in substance between the two groups of subjects with managers appearing performance driven, while students are more cost driven.

Suggested Citation

  • Claude Montmarquette & Jean-Louis Rullière & Marie-Claire Villeval & Romain Zeiliger, 2004. "Redesigning Teams and Incentives in a Merger: An Experiment with Managers and Students," Management Science, INFORMS, vol. 50(10), pages 1379-1389, October.
    • Handle: RePEc:inm:ormnsc:v:50:y:2004:i:10:p:1379-1389
    DOI: 10.1287/mnsc.1040.0280
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    More about this item

    Keywords

    executive and team-based compensation; subject pool effects; real task experiment; incentives; sorting; mergers;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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